Santos misses estimates despite strong jump in first-quarter sales

Angela Macdonald-Smith

Santos has missed analyst estimates for first-quarter sales and production, despite posting a 28 per cent jump in revenues.

Both UBS and Credit Suisse said the numbers fell short of their expectations, with Credit Suisse analyst Mark Samter putting the gap at 9 per cent for first-quarter output.

Santos shares slid as much as 29¢, or 2.2 per cent, to $13.15 in early trading on Thursday. They then recovered to about $13.43 around midday.

Sales in the March quarter rose to $913 million, up from $713 million a year earlier, on production that edged up 1 per cent to 12.2 million boe, from 12.1 million, the Adelaide-based oil and gas producer said in its quarterly report. It maintained its guidance for full-year production at 52 million to 57 million barrels of oil equivalent.

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"It's a bit soggy on the production and the revenues front," Mr Samter said. "Nothing wildly negative but a bit of a damp squib."

He said the real driver for Santos remained the progress on its two large LNG construction projects, the $US19 billion LNG venture in Papua New Guinea led by ExxonMobil, and the $US18.5 billion GLNG project in Gladstone.

Both those ventures remain on track, with PNG LNG ahead of schedule and first LNG expected mid-year, said chief executive David Knox.

Production of condensates has already started from the Hides field being developed for PNG LNG, meaning first gas production won't be far behind, said Mr Samter.

Mr Knox said the higher revenues in the March quarter compared with a year earlier were primarily driven by increased sales of crude oil from third parties.

"During the quarter we also delivered the Peluang project in Indonesia ahead of schedule and on budget," Mr Knox said in a statement.

"Our other Asian project, the Dua oil project in Vietnam, is progressing well and remains on track for first oil in mid-2014."

Oil production in the March quarter was higher than a year earlier due to the start-up of the Fletcher-Finucane project in Western Australia last May. But gas output was 4 per cent lower, with higher production from the Darwin LNG project and the Cooper Basin offset by lower flows from the Carnarvon Basin, which Santos put down to "lower customer nominations."

UBS energy analyst Nik Burns said the quarter was a "seasonally weak" one for Santos. He said probably the only real surprise was how quickly output from Fletcher-Finucane, which started production last May, was tailing off.

The GLNG project is 80 per cent complete and remains on track to deliver first LNG next year, Santos said. It said the 35 wells drilled in the March quarter were in line with plans.

Gas flows from wells at the key Fairview field continue to exceed expectations while the production of wells on the Roma field were in line with expectations, the company added.

But Mr Samter, who has long held a negative view on GLNG and the ongoing spending required to maintain coal seam gas supplies to feed the two-train plant on Curtis Island in Gladstone, voiced some doubts about the progress of drilling.

"At a time when the other two projects are increasing drilling, GLNG is slowing down pretty dramatically," he said.

"Over 2014 and 2015 combined they say they are going to drill 300 wells. And a number of wells as an isolated number means absolutely nothing if we don't know how much gas that is targeted to produce and therefore how much third party gas is on the other side of it. That also means very little to the market without clear indications of how much it's going to cost."